The litigation funding company that's targeting the big banks over penalty fees says it's been overwhelmed by the public response.

The banks could be forced to repay billions of dollars if the courts agree that fat fees for late payments and overdrawn accounts are illegal.

Shane McLeod reports.

SHANE MCLEOD: It's the tension between ambition and reality. That special moment when your bank statement reveals the funds in your account didn't quite match up with the payment you tried to make and your bank charged you a dishonour fee maybe 30 or even up to $60.

Thousands of Australians have had the experience and now thousands of them are joining a class action that aims to get the money or at least some of it back from the big banks.

Bernard Murphy is chairman of solicitors Maurice Blackburn.

BERNARD MURPHY: Last night, the website's only been open half a day, there were already 3,000 registrations. We're the largest class action law firm in the country and we've never seen a response like it.

SHANE MCLEOD: Bernard Murphy says the case will hinge on contract law and the fact that penalty fees are in excess of what it cost the banks to process late payments or bounced cheques.

BERNARD MURPHY: There's a contract law provision which states that if one party breaches a contract the victim of the breach is only allowed to charge a genuine pre-estimate of the damages for that. So, the situation we have here is that a person overdraws the account in breach of the contract with the bank and the bank's entitled to charge a genuine pre-estimate of the actual cost of that.

Now that genuine pre-estimate would be, in some cases in relation to credit cards, overdrawn several cents. In relation to cheques maybe $2. They've been charging $25 to $60. So we say the charges are extravagant and exorbitant. The law says that if those charges are extravagant or exorbitant then they amount to a penalty, which is illegal.

SHANE MCLEOD: Australian banks have anticipated the threat to their fees. Last year they started winding them back.

One of the first to move was the National Australia Bank. At the time its chief executive Cameron Clyne explained why.

CAMERON CLYNE: We see this as just a first step, a small step in rebuilding our reputation, which we've called out as a strategic issue. As I said today, this fee generates one in two of all the complaints the bank receives. So we think it's a pretty good place to start.

SHANE MCLEOD: Scrapping the dishonour fees was estimated to cost the NAB alone around $100 million.

This morning the Bankers Association says it's aware of reports about the class action but says it if it proceeds, it will be a matter for the courts to consider.

From the Archives

Around 500 Indigenous people fought in the First World War, and as many as 5,000 in the second. But many Aboriginal and Torres Strait Islander diggers who made it home received little or no recognition for their contribution. On Anzac Day, 2007, the first parade to commemorate their efforts and bravery was held in Sydney. Listen to our report from that day by Lindy Kerin.